A Tesla Model S. Tesla Motors Inc. unveiled a service program on Friday meant to quell fears about buying and maintaining an electric car and boost sales of the Model S sedan in the long run. (Tesla Motors)

A Tesla Model S. Tesla Motors Inc. unveiled a service program on Friday meant to quell fears about buying and maintaining an electric car and boost sales of the Model S sedan in the long run.(Tesla Motors)

Everyone is excited about the potential for electric cars in China — except the companies actually making cars in China.

At the Detroit Auto Show in January of this year, Tesla announced its
plans to open a dealership in Beijing — its first store in China. George Blankenship,
the company’s vice president of worldwide sales, said the store will
house an 8,000-square-foot facility, much larger than its U.S. stores,
which typically have 2,500 to 3,000 square feet of floor space. “The
China market is incredibly important to us,” Blankenship said. “We think
our timing is perfect.”

At the Shanghai Auto Show in April, Detroit Electric, the rejuvenated
auto maker aiming to build a line of limited electric sports cars, announced that
it had teamed up with China-based Geely Automobile Group to develop
electric vehicles and related motors and drive trains for the Chinese
market.

Like Tesla and Detroit Electric, many officials in the Chinese
government would also like to see more electric vehicles in China. Much
has been made out of the fact that Wan Gang, China’s
Minister of Science and Technology who has championed the research and
development of new energy vehicles for decades, promoted the new
industry during this year’s annual legislative session. To show his
support for electric vehicles, Wan abandoned his
official sedan and took a small electric car instead as a commuter
vehicle. The silver electric vehicle, with a slogan “zero-pollution,
zero-emission” posted on the car body, carried Wan back and forth
between the conference venue, his office and the media center.

From outside China looking in, it seems quite logical that China
should embrace electric vehicles. Major cities like Beijing are
struggling under crippling air pollution, and Beijing is only the
17th-most polluted city in
the country. China also is importing oil, and energy demand continues
to grow. Anything that can be done to reduce oil consumption ought to
gain traction, it is thought. Finally, periodic statements by high
ranking officials like Wan seem to demonstrate a high degree of
government support for the electric vehicle industry.

However, the reality on the ground in China is quite different. At
the end of March, there were only 39,800 electric vehicles on the road
in the country, 80 per cent of which were used for public transportation.
Moreover, recent meetings that we have had with most of China’s local
car assemblers confirm that none are counting on electric vehicles for
any meaningful amount of growth anytime soon. While all of the local
assemblers maintain electric vehicle programs to show the government,
none are devoting any significant amount of resources to these programs.
When one looks below the surface, support for electric vehicles is
lukewarm at best — even at those Chinese assemblers that seem to be
devoting resources to the sector.

Despite Geely’s cooperation with Detroit Electric, for example, Li Shufu, the company’s founder and chairman, told a
press conference during the Chinese People’s Political Consultative
Conference in Beijing in March that low-speed electric vehicles are the
way to go for Chinese cities. Li believes that China should give
priority to the development of low-speed electric vehicles due to
practical considerations. He said: “Low-speed electric vehicles have
many advantages. They are suitable for short driving ranges… This type
of electric vehicle can be designed to be very small and lightweight,
incorporating a smaller battery, which has a reduced battery pack
capacity that saves more energy.” Obviously, Li’s vision for the
electric vehicle industry, which we confirmed recently in conversations
with other senior officials at the company, is quite different than that
held by either Tesla or Detroit Electric.

BYD, the poster child for electric vehicles in China, is also
de-emphasizing electric vehicles. In recent discussions, the company
said it is focusing on the development of hybrid vehicles, rather than
pure electrics. In BYD’s opinion, the future development of electric
vehicles is too dependent upon local government policies, which are
inherently unpredictable.

When Western observers analyze China, they often pay too much
attention to statements by government officials and tend to forget that
the government itself does not produce vehicles. While the Chinese
government does own companies that do, even the most loyal executive at a
state-owned enterprise (SOE) will not devote substantial resources to
develop a product that cannot be sold in the marketplace. It’s nice for
government officials to talk about how they would like to see an
industry develop. It’s quite another for an executive at an SOE or a
private company to stake his or her career on a new product, unless
there is a clear market for the product. Moreover, China is a
complicated country with many different factions. While Wan may
represent the faction that favors electric vehicles, other factions may
not be so sure that this is the way for China to go.

Even ardent supporters like Wan recognize the difficulties that lie
ahead for electric vehicles. At his press conference, Wan indicated
that, besides the subsidies to private buyers of new energy vehicles, a
more coordinated development will be needed in the long run and “such
coordinated development needs a combination of charging facilities,
environmental protection measures, industrial development policies and
efforts from the power sectors.” In its efforts to increase the number
of electric vehicles on its roads over the next five years, Wan also
said that government subsidies are only “short-term solutions,” and that
the industry can only be sustained and expanded by raising technology
levels and lowering costs.

Due to their intellectual appeal, hype for electric vehicles has
always gotten ahead of the realities of market demand. In China, this is
once again proving to be true.

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